Growth and Performance Measurement of ESG-themed Mutual Funds in India: An Empirical Investigation

Abstract

The world is witnessing a stupendous rise in Environmental, Social, and Governance (ESG) investment practices due to changing dimensions of risks and consequent clamour for the adoption of sustainable practices. In this scenario, ESG-themed mutual funds have provided an alternative route to ESG investing. This study aims to analyse the growth of ESG mutual funds in India and evaluate their performance using standalone return and risk measures as well as widely recognised risk-adjusted measures, namely, Sharpe Index, Treynor Ratio, Sortino Measure, and Jensen’s Alpha. With respect to growth, the study found that the industry is still in its infancy though a steady and positve momentum is seen both in terms of number as well as assets under their management. Without taking into account the social perks of sustainable investment, the results of the performance analysis revealed Quant ESG Equity Fund to be the best performer. Interestingly, the study also found that all the sample funds have ‘beaten the market’ and earned superior returns. The findings of the study substantiate that ESG investing not only leads to the accomplishment of sustainability goals of investors but also affords them returns higher than the traditional route to investing.